Sector Snap: Homebuilders follow Pulte higher

NEW YORK 
Shares of most homebuilders were mixed in Wednesday trading after two reports gave weak readings on the current housing market.

Bucking the trend was Pulte Homes Inc., which jumped after a Citi analyst said the current price of its shares didn't reflect its earnings potential.

As the housing sector improves over the next six months, investors will focus on the earnings homebuilders could post in fully-recovered economy, said Citi Investment Research analyst Josh Levin in a note to investors. Pulte's current share price doesn't reflect that optimism, he said, upgrading Pulte to "Buy" from "Hold" and raising his price target on the stock by $1 to $12.

Pulte shares rose 48 cents, or 5 percent, to $10.08, leading homebuilder stocks higher despite bad news from the Commerce Department on the current state of the housing market:

– The government said construction of new homes dropped 10.6 percent in October, to the lowest level since April.

– Applications for building permits, a signal of future building, also fell 4 percent, to the lowest annual rate since May. Permits for single-family homes, however, fell only 0.2 percent.

That shows how important consumers – and builders – see government stimulus measures. A federal tax credit for first-time homebuyers was due to expire Nov. 30, and builders held off on projects as politicians weighed a possible extension last month. Earlier this month, Congress extended the credit, worth up to $8,000, to April 30. It also created a credit of up to $6,500 for would-be buyers who have owned their current homes for five years.

Meanwhile, fewer people applied for mortgage loans last week. The Mortgage Bankers Association said its measure of mortgage loan application volume fell 2.5 percent, on a seasonally adjusted basis, from a week earlier, even though the average interest rate on mortgages dropped. The rate on 30-year fixed-rate mortgages dropped to its lowest level since mid-May.

The Federal Reserve has pumped $1.25 trillion into mortgage-backed securities to try to keep rates on mortgages low and help Americans buy homes.

Homebuilder stocks largely brushed off the reports, moving higher even as broader markets ticked lower. Shares of the beleaguered builders soared this summer as investors bet on an eventual recovery in housing.